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Time for Companies to Take on The Latest One Percent Problem

leonkaye headshotWords by Leon Kaye
Leadership & Transparency
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Over 80 years ago, while the U.S. was mired in the Great Depression and a quarter of the working population had no jobs, critics of President Franklin D. Roosevelt charged that his New Deal programs were a slippery slope toward socialism. FDR firmly responded that he was saving capitalism from itself.

Now, as income inequality becomes worse, the global business sector would be wise to take a hard look at FDR’s words and try to fix what many say is a broken economic system—after all, if companies want to avoid the risks of further regulation and the whims of populist or even demagogic politicians, better to fix their baby now than find it thrown out with the bathwater.

This ongoing backlash is easy to understand when many CEOs’ executive pay is compared to that of their companies’ lowest-paid workers—a gap that has spiked from the hundreds to over 1,000-fold. As more frustration is directed at the “one percent,” the time to reassess executive pay was, quite frankly, yesterday.

To that end, plenty of attention has been foisted on Roy Disney’s granddaughter, Abigail Disney, who earlier this week described CEO Bog Iger’s compensation package as “insane.”

In fairness to Disney, this week’s press coverage shines light on a problem affecting many companies, across all sectors. When it comes to Iger’s pay, many executive compensation experts often respond that high CEO pay is justified when you look at a company’s financial results—and there is plenty of data that can back up that point of view. Just take a look at Disney’s stock price over the past 10 years—while there has been plenty of ebb and flow, overall the stock has been on an upward trajectory. If you bought Disney stock in February 2009, your investment would have soared almost seven-fold over the years—not a bad return on investment. If I had the foresight to plunk big money on Disney, I would be writing this (or not) from a new vacation condo and, from my point of view, Bob Iger’s compensation would have been a moot point.

As Kerri Anne Renzulli pointed out on CNBC, “Iger’s much higher pay doesn’t make him an outlier. In fact, Iger joins a fairly full club of CEOs who earn over 1,000 times more than their typical employee does.”

CEOs of Starbucks, Coco-Cola, Kohl’s, Chipotle, Mattel and The Gap also land on that list. Starbucks is yet another company that can point to its stock price history and quickly dismiss any fuss over its CEO’s salary package as a non-starter.

Nevertheless, even the Wall Street Journal has challenged the conventional wisdom that (excessively) well-paid CEOs results in top performing corporations.

One recently released study suggests a lot of this fuss has its roots not in greed, as Vermont Sen. Bernie Sanders has long been quick to say, but actually, in structure. Australian researchers concluded that companies that use executive compensation consultants often end up paying more for their CEOs. Unsurprisingly, the more these consultants were paid, the more CEOs often ended up getting higher compensation plans.

But we don’t see this scenario on one side of the Pacific Rim. Advocates for reined-in CEO salaries point to Japan as an example where the CEO-worker bee pay gap is far lower. Of course, considering Japan’s economic struggles since the early 1990s, supporters of the current CEO pay structure here in the U.S. can offer their immediate retorts to any attempts at propping up Japan as a case study.

The reality many companies have to face as they hear this continued outcry is that finding decent-paying work is far harder now than in generations past—hence angst over CEO pay while many workers find themselves stuck in the gig economy.  I was reminded of this reality when I overheard a conversation last summer involving several 60-somethings at a café in a Southern California beach community, where modest homes built for blue-collar workers after World War II now fetch prices of approximately a million dollars.

“Remember when you could quit your job in the early '80s if you just didn’t like it and you’d find something else quickly?” one of the former surfer dudes asked his buddies.

Yes, I do remember, because I recall junior high school lessons in which we looked at newspaper classified ads to find jobs that not only paid well but had “fringe benefits.” Now, no one sane will quit their job on a whim—the fear is that any of us could get laid off at any moment, and then struggle to pay for overpriced health care, one of many expenses that can’t be paid by driving for a ride-hailing service or working in retail.

When it comes to the CEO compensation debate, both sides are entitled to opinions, but not to their own facts. And the reality for companies is that they are not entitled to spinning the optics, either. As more business-friendly voices such as the WSJ and Forbes call out what’s wrong with executive compensation and even capitalism’s current foibles, executive compensation will need a serious once-over. Showcasing sustainability, diversity or activism won’t cut it anymore—it’s time to for companies to rethink executive pay, or else political leaders will soon rethink it for them.

Image credit: Alexander Mills/Unsplash

Leon Kaye headshotLeon Kaye

Leon Kaye, Executive Editor, has written for Triple Pundit since 2010. He is also the Director of Social Media and Engagement for 3BL Media, and the Editor in Chief of CR Magazine. His previous work can be found at The GuardianSustainable Brands and CleanTechnica. Kaye is based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas.

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